Altruism or trade motive: what determines China’s financial aid to African oil exporting countries?
Abstract
Indeed, China’s ascent is significantly changing the landscape in aid-donor and aid-recipient relationship for African countries, despite the changes, empirical studies on the determinant and motive is lacking. Therefore, this paper examines the determinants of China’s financial aid to oil/ minerals exporting African countries. By using China’s loan data obtained from the China Africa Research Initiative, Johns Hopkins University and UN-COMTRADE product data classified into oil/ minerals, agriculture and manufacturing, this study employs fixed effects, generalised least squares and Pesaran dynamic fixed effects to analyse the motives. The results indicate that oil/minerals are not the motives behind China’s aid to Africa. However, China’s aid is driven by its manufacturing exports, suggesting that aid may be tied to trade. Also, the institutional structure enhances more financial aid to Africa. The findings of this study serve as recommendations for policymakers to improve trade policies that will enhance the sustainability of Africa’s engagement with China.
Keyword : China, Africa, oil and minerals, manufacturing, agriculture, aid, institutional structures
How to Cite
Gold, K., Rasiah, R., Kwek, K. T., Yusuf, H., Musibau, H., & Muhammad, M. (2021). Altruism or trade motive: what determines China’s financial aid to African oil exporting countries?. Journal of Business Economics and Management, 22(4), 1104-1123. https://doi.org/10.3846/jbem.2021.13692
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Calì, M., & te Velde, D. W. (2011). Does aid for trade really improve trade performance? World Development, 39(5), 725–740. https://doi.org/10.1016/j.worlddev.2010.09.018
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Gold, K. L., Rajah, R., Kwek, K. T., Murtala, M., & Yusuf, H. A. (2017). China’s aid and oil-for-infrastructure in Nigeria: Resource driven or development motive? Contemporary Chinese Political Economy and Strategic Relations: An International Journal, 3(3), 1197–1235.
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Gold, K. L., Yusuf, H. A., Akanbi, S. B., & Donald, U. C. (2015). China’s engagement in Africa: An analytical literature review. Lapai International Journal of Management and Social Sciences, 8(1–2), 300–318.
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Hanusch, M. (2012). African perspectives on China–Africa: Modelling popular perceptions and their economic and political determinants. Oxford Development Studies, 40(4), 492–516. https://doi.org/10.1080/13600818.2012.728580
Hausman, J. A., & Taylor, W. E. (1981). A generalized specification test. Economics Letters, 8(3), 239– 245. https://doi.org/10.1016/0165-1765(81)90073-2
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Kobayashi, T. (2013). China: From an aid recipient to an emerging major donor. In M. Nissanke, & Y. Shimomura (Eds.), Aid as handmaiden for the development of institutions: A new comparative perspective (pp. 220–254). Palgrave Macmillan. https://doi.org/10.1057/9781137023483_8
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Mawdsley, E. (2008). Fu Manchu versus Dr Livingstone in the Dark Continent? Representing China, Africa and the West in British broadsheet newspapers. Political Geography, 27(5), 509–529. https://doi.org/10.1016/j.polgeo.2008.03.006
Muhammad, M., Buba, R., Agboola, Y. H., & Gold, L. K. (2018). Nigerian textile industry: Evidence of policy neglect. SARJANA, 33(1), 40–56.
Murtala, M., Mansur, I. M., & Gold, K. L. (2017). The impact of Chinese textile imperialism on Nigeria’s textile industry and trade: 1960–2015. Review of African Political Economy, 44(154), 673–682. https://doi.org/10.1080/03056244.2017.1313729
Musibau, H. O., Yusuf, A. H., & Gold, K. L. (2019). Endogenous specification of foreign capital inflows, human capital development and economic growth: A study of pool mean group. International Journal of Social Economics, 46(3), 454–472. https://doi.org/10.1108/IJSE-04-2018-0168
Nazarko, J., Czerewacz-Filipowicz, K., & Kuźmicz, K. A. (2017). Comparative analysis of the Eastern European countries as participants of the new silk road. Journal of Business Economics and Management, 18(6), 1212–1227. https://doi.org/10.3846/16111699.2017.1404488
Neumayer, E., & Spess, L. (2005). Do bilateral investment treaties increase foreign direct investment to developing countries? World Development, 33(10), 1567–1585. https://doi.org/10.1016/j.worlddev.2005.07.001
Niu, Z. (2016). China’s development and its aid presence in Africa: A critical reflection from the perspective of development anthropology. Journal of Asian and African Studies, 51(2), 199–221. https://doi.org/10.1177/0021909614545699
Odoom, I. (2017). Dam In, Cocoa Out; Pipes In, Oil Out: China’s engagement in Ghana’s energy sector. Journal of Asian and African Studies, 52(5), 598–620. https://doi.org/10.1177/0021909615599419
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621–634. https://doi.org/10.1080/01621459.1999.10474156
Renard, M.-F. (2011). China’s trade and FDI in Africa (Working Paper No. 126). African Development Bank Group.
Selaya, P., & Sunesen, E. R. (2012). Does foreign aid increase foreign direct investment? World Development, 40(11), 2155–2176. https://doi.org/10.1016/j.worlddev.2012.06.001
Trumbull, W. N., & Wall, H. J. (1994). Estimating aid-allocation criteria with panel data. The Economic Journal, 104(425), 876–882. https://doi.org/10.2307/2234981
Tull, D. M. (2006). China’s engagement in Africa: Scope, significance and consequences. The Journal of Modern African Studies, 44(03), 459–479. https://doi.org/10.1017/S0022278X06001856
Vijil, M., & Wagner, L. (2012). Does aid for trade enhance export performance? Investigating the infrastructure channel. The World Economy, 35(7), 838–868. https://doi.org/10.1111/j.1467-9701.2012.01437.x
Wagner, D. (2003). Aid and trade – an empirical study. Journal of the Japanese and International Economies, 17(2), 153–173. https://doi.org/10.1016/S0889-1583(03)00010-8
Wall, H. J. (1995). The allocation of official development assistance. Journal of Policy Modeling, 17(3), 307–314. https://doi.org/10.1016/0161-8938(94)00031-A
Wang, R., Bar, F., & Hong, Y. (2020). ICT aid flows from China to African countries: A communication network perspective. International Journal of Communication, 14, 26.
World Bank. (2019). Belt and road economics: Opportunities and risks of transport corridors. M. Ruta, M. H. Dappe, C. Zhang, E. Churchill, C. Constantinescu, M. Lebrand & A. Mulabdic (Eds.). World Bank Publications.
Younas, J. (2008). Motivation for bilateral aid allocation: Altruism or trade benefits. European Journal of Political Economy, 24(3), 661–674. https://doi.org/10.1016/j.ejpoleco.2008.05.003
Younas, J., & Bandyopadhyay, S. (2007). Do donors care about declining trade revenues from liberalization? An analysis of aid allocation (Working Paper 2007-028A). Federal Reserve Bank of St. Louis. https://doi.org/10.2139/ssrn.1004297
Zafar, A. (2007). The growing relationship between China and Sub-Saharan Africa: Macroeconomic, trade, investment, and aid links. World Bank Research Observer, 22(1), 103–130. https://doi.org/10.1093/wbro/lkm001
Alabi, O. G., Adetunji, B. M., & Ogunkola, E. O. (2011). An analysis of China‐Nigeria investment relations. Journal of Chinese Economic and Foreign Trade Studies, 4(3), 183–199. https://doi.org/10.1108/17544401111178221
Alden, C. (2005). China in Africa. Survival, 47(3), 147–164. https://doi.org/10.1080/00396330500248086
Alesina, A., & Dollar, D. (2000). Who gives foreign aid to whom and why? Journal of Economic Growth, 5(1), 33–63. https://doi.org/10.1023/A:1009874203400
Asiedu, E. (2002). On the determinants of foreign direct investment to developing countries: Is Africa different? World Development, 30(1), 107–119. https://doi.org/10.1016/S0305-750X(01)00100-0
Asiedu, E. (2006). Foreign direct investment in Africa: The role of natural resources, market size, government policy, institutions and political instability. The World Economy, 29(1), 63–77. https://doi.org/10.1111/j.1467-9701.2006.00758.x
Baltagi, B. (2008). Econometric analysis of panel data. John Wiley & Sons.
Beck, N. (2001). Time-series–cross-section data: What have we learned in the past few years? Annual Review of Political Science, 4(1), 271–293. https://doi.org/10.1146/annurev.polisci.4.1.271
Beck, N., & Katz, J. N. (1995). What to do (and not to do) with time-series cross-section data. American Political Science Review, 89(3), 634–647. https://doi.org/10.2307/2082979
Biggeri, M., & Sanfilippo, M. (2009). Understanding China’s move into Africa: An empirical analysis. Journal of Chinese Economic and Business Studies, 7(1), 31–54. https://doi.org/10.1080/14765280802604714
Bräutigam, D. (2010). China, Africa and the international aid architecture (African Development Bank Group Working Paper, 107 (April)). Tunis, Tunisia.
Bräutigam, D. (2011a). Chinese development aid in Africa: What, where, why, and how much? In L. a. G. Song, J. (Ed.), Rising China: Global challenges and opportunities (pp. 203–223). Australian National University Press. https://doi.org/10.22459/RC.06.2011.13
Bräutigam, D. (2011b). The Dragon’s Gift: The real story of China in Africa (Vol. 15). Oxford University Press.
Broich, T., & Szirmai, A. (2014). China’s economic embrace of Africa: An international comparative perspective. The Netherlands: Maastricht Graduate School of Governance/UNU-MERIT (Working Paper Series No. 2014-049).
Calì, M., & te Velde, D. W. (2011). Does aid for trade really improve trade performance? World Development, 39(5), 725–740. https://doi.org/10.1016/j.worlddev.2010.09.018
Cao, H., & Paltiel, J. (2015). Facing China as a New Global Superpower: Domestic and international dynamics from a multidisciplinary angle. Springer. https://doi.org/10.1007/978-981-287-823-6
DeBoom, M. J. (2020). Who is afraid of “debt-trap diplomacy”? Geopolitical narratives, agency and the multiscalar distribution of risk. Area Development and Policy, 5(1), 15–22. https://doi.org/10.1080/23792949.2019.1703556
Edwards, L., & Jenkins, R. (2014). The margins of export competition: A new approach to evaluating the impact of China on South African exports to Sub-Saharan Africa. Journal of Policy Modeling, 36(Suppl 1), S132–S150. https://doi.org/10.1016/j.jpolmod.2013.10.003
Fielding, D., & Gibson, F. (2013). Aid and Dutch Disease in Sub-Saharan Africa. Journal of African Economies, 22(1), 1–21. https://doi.org/10.1093/jae/ejs013
Fijałkowski, Ł. (2011). China’s “soft power” in Africa? Journal of Contemporary African Studies, 29(2), 223–232. https://doi.org/10.1080/02589001.2011.555197
Flannery, M. J., & Hankins, K. W. (2013). Estimating dynamic panel models in corporate finance. Journal of Corporate Finance, 19, 1–19. https://doi.org/10.1016/j.jcorpfin.2012.09.004
Gold, K. L., & Devadason, E. S. (2018). The engagement of China in Nigeria’s oil sector: Is the transformation positive? Contemporary Chinese Political Economy and Strategic Relations: An International Journal, 4(3), 1025–1060.
Gold, K. L., Rajah, R., Kwek, K. T., Murtala, M., & Yusuf, H. A. (2017). China’s aid and oil-for-infrastructure in Nigeria: Resource driven or development motive? Contemporary Chinese Political Economy and Strategic Relations: An International Journal, 3(3), 1197–1235.
Gold, K. L., Rasiah, R., & Kwek, K. T. (2019). Econometric analysis of the determinants of China’s FDI in oil/minerals exporting countries in Africa. Journal of Applied Economic Sciences, XIV(2(64)), 454–467.
Gold, K. L., Yusuf, H. A., Akanbi, S. B., & Donald, U. C. (2015). China’s engagement in Africa: An analytical literature review. Lapai International Journal of Management and Social Sciences, 8(1–2), 300–318.
Goldstein, A., Pinaud, N., Reisen, H., & McCormick, D. (2009). The Asian drivers and Africa: Learning from case studies. World Economy, 32(11), 1538–1542. https://doi.org/10.1111/j.1467-9701.2009.01248.x
Hanusch, M. (2012). African perspectives on China–Africa: Modelling popular perceptions and their economic and political determinants. Oxford Development Studies, 40(4), 492–516. https://doi.org/10.1080/13600818.2012.728580
Hausman, J. A., & Taylor, W. E. (1981). A generalized specification test. Economics Letters, 8(3), 239– 245. https://doi.org/10.1016/0165-1765(81)90073-2
International Energy Agency. (2016). World Energy Outlook (pp. 684). https://www.iea.org/reports/world-energy-outlook-2016
Kobayashi, T. (2013). China: From an aid recipient to an emerging major donor. In M. Nissanke, & Y. Shimomura (Eds.), Aid as handmaiden for the development of institutions: A new comparative perspective (pp. 220–254). Palgrave Macmillan. https://doi.org/10.1057/9781137023483_8
Kragelund, P. (2008). The return of Non-DAC donors to Africa: New prospects for African development? Development Policy Review, 26(5), 555–584. https://doi.org/10.1111/j.1467-7679.2008.00423.x
Lau, R. K.-S. (2020). Africa-China relations in the context of belt and road initiative: Realizing AfricanChinese dreams for common development? In J. Berlie (Ed.), China’s globalization and the belt and road initiative: Politics and development of contemporary China (pp. 157–178). Palgrave Macmillan. https://doi.org/10.1007/978-3-030-22289-5_9
Levine, R. (2005). Finance and growth: Theory and evidence. Handbook of Economic Growth, 1(Part A), 865–934. https://doi.org/10.1016/S1574-0684(05)01012-9
Mawdsley, E. (2008). Fu Manchu versus Dr Livingstone in the Dark Continent? Representing China, Africa and the West in British broadsheet newspapers. Political Geography, 27(5), 509–529. https://doi.org/10.1016/j.polgeo.2008.03.006
Muhammad, M., Buba, R., Agboola, Y. H., & Gold, L. K. (2018). Nigerian textile industry: Evidence of policy neglect. SARJANA, 33(1), 40–56.
Murtala, M., Mansur, I. M., & Gold, K. L. (2017). The impact of Chinese textile imperialism on Nigeria’s textile industry and trade: 1960–2015. Review of African Political Economy, 44(154), 673–682. https://doi.org/10.1080/03056244.2017.1313729
Musibau, H. O., Yusuf, A. H., & Gold, K. L. (2019). Endogenous specification of foreign capital inflows, human capital development and economic growth: A study of pool mean group. International Journal of Social Economics, 46(3), 454–472. https://doi.org/10.1108/IJSE-04-2018-0168
Nazarko, J., Czerewacz-Filipowicz, K., & Kuźmicz, K. A. (2017). Comparative analysis of the Eastern European countries as participants of the new silk road. Journal of Business Economics and Management, 18(6), 1212–1227. https://doi.org/10.3846/16111699.2017.1404488
Neumayer, E., & Spess, L. (2005). Do bilateral investment treaties increase foreign direct investment to developing countries? World Development, 33(10), 1567–1585. https://doi.org/10.1016/j.worlddev.2005.07.001
Niu, Z. (2016). China’s development and its aid presence in Africa: A critical reflection from the perspective of development anthropology. Journal of Asian and African Studies, 51(2), 199–221. https://doi.org/10.1177/0021909614545699
Odoom, I. (2017). Dam In, Cocoa Out; Pipes In, Oil Out: China’s engagement in Ghana’s energy sector. Journal of Asian and African Studies, 52(5), 598–620. https://doi.org/10.1177/0021909615599419
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621–634. https://doi.org/10.1080/01621459.1999.10474156
Renard, M.-F. (2011). China’s trade and FDI in Africa (Working Paper No. 126). African Development Bank Group.
Selaya, P., & Sunesen, E. R. (2012). Does foreign aid increase foreign direct investment? World Development, 40(11), 2155–2176. https://doi.org/10.1016/j.worlddev.2012.06.001
Trumbull, W. N., & Wall, H. J. (1994). Estimating aid-allocation criteria with panel data. The Economic Journal, 104(425), 876–882. https://doi.org/10.2307/2234981
Tull, D. M. (2006). China’s engagement in Africa: Scope, significance and consequences. The Journal of Modern African Studies, 44(03), 459–479. https://doi.org/10.1017/S0022278X06001856
Vijil, M., & Wagner, L. (2012). Does aid for trade enhance export performance? Investigating the infrastructure channel. The World Economy, 35(7), 838–868. https://doi.org/10.1111/j.1467-9701.2012.01437.x
Wagner, D. (2003). Aid and trade – an empirical study. Journal of the Japanese and International Economies, 17(2), 153–173. https://doi.org/10.1016/S0889-1583(03)00010-8
Wall, H. J. (1995). The allocation of official development assistance. Journal of Policy Modeling, 17(3), 307–314. https://doi.org/10.1016/0161-8938(94)00031-A
Wang, R., Bar, F., & Hong, Y. (2020). ICT aid flows from China to African countries: A communication network perspective. International Journal of Communication, 14, 26.
World Bank. (2019). Belt and road economics: Opportunities and risks of transport corridors. M. Ruta, M. H. Dappe, C. Zhang, E. Churchill, C. Constantinescu, M. Lebrand & A. Mulabdic (Eds.). World Bank Publications.
Younas, J. (2008). Motivation for bilateral aid allocation: Altruism or trade benefits. European Journal of Political Economy, 24(3), 661–674. https://doi.org/10.1016/j.ejpoleco.2008.05.003
Younas, J., & Bandyopadhyay, S. (2007). Do donors care about declining trade revenues from liberalization? An analysis of aid allocation (Working Paper 2007-028A). Federal Reserve Bank of St. Louis. https://doi.org/10.2139/ssrn.1004297
Zafar, A. (2007). The growing relationship between China and Sub-Saharan Africa: Macroeconomic, trade, investment, and aid links. World Bank Research Observer, 22(1), 103–130. https://doi.org/10.1093/wbro/lkm001